My Business Wants To...
Part of this information has been extracted from the HM Treasury booklet entitled "A Guide to Giving for Businesses" - November 2009. It is reproduced under Crown Copyright Licence.
Payroll Giving is quite simply the easiest and most tax efficient way to support Charity.
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Your business can claim tax relief on that donation, whether it is large or small, one off or regular, by using Gift Aid.
Gift Aid is a scheme by which tax relief is available for donations of money. The way Gift Aid works depends on whether your business is a company, you are a sole trader or trading in partnership:
To give through Gift Aid, your company simply pays the money to Charity. Your company does not deduct any tax from the donation and does not need to make a Gift Aid declaration to the Charity. To get the tax relief, you deduct the amount of the donation from total profits prior to calculating your company's corporation tax.
For the self-employed
Gift Aid donations from the self-employed (sole traders) are treated in the same way as Gift Aid by individuals. Therefore, your donation will be treated as paid out of taxed income and the Charity will reclaim basic rate tax on the donation from HM Revenue & Customs. For qualifying donations made by donors on or after 6 April 2008, Charities will claim Gift Aid repayments at the basic rate of 20 per cent and they will also be entitled to a transitional relief worth 3p for every £1 donation they receive under the Gift Aid scheme (the transitional relief will be paid on qualifying donations made up to 5 April 2011). This means that for every £1 given, the Charity will continue to receive an additional 28p in Gift Aid. As a sole trader, you will be required to complete a Gift Aid declaration for the Charity. If you are a higher rate taxpayer, you can get relief on the difference between the basic rate and the higher rate of tax on the gross amount of the gift – you simply show the amount of the gift on your tax return.
Gift Aid donations received from businesses that are run as partnerships will be split into individual donations of equal amounts from each of the individual partners, unless the partnership decides to split them in different proportions. The tax position for each partner is the same as Gift Aid for individuals and each partner must complete their own Gift Aid declaration. Again, if a partner is a higher rate taxpayer, they can get relief on the difference between the basic rate and the higher rate of tax on the gross amount of the gift provided they show the amount of the gift on their tax return.
A Charity may thank your business for its generosity. In some cases a Charity will give a small token of its appreciation such as a newsletter or badge, but more substantial ‘thank-yous' such as places at Charity dinners or other events might be provided. There are limits to the amount of benefit that you can receive as an individual, partner, or company. The overriding limit for benefits on donations of any level over a year is £500.
Donations that are freely given and for which your business, as the donor, receives nothing in return are outside the scope of VAT. However, if your business receives benefits beyond an acknowledgement from the charity in return for making the payment you should refer to the guidance on sponsorship below.
Your business can claim tax relief for sponsorship of a Charity, provided the payment is made wholly and exclusively for the purposes of your trade.
Sponsorship is generally different from a donation of money because your business gets something in return. Where, for example, you get publicity for your business or one of its products, which is a reasonable return for the amount paid, it may be regarded as a legitimate trading expense on which tax relief may be claimed. Relief is not available where the payment relates to the acquisition, improvement or extension of an asset held for use in the business. Where a payment qualifies for relief, all you need to do is deduct the value of the sponsorship payment when your business is calculating its profits for tax purposes. Whether a payment qualifies for relief depends on the circumstances – you should contact HMRC Charities on (8am to 5pm Monday to Friday) for advice.
Payments that are not made wholly and exclusively for the purposes of your trade may attract relief under Gift Aid. Relief may be given for donations of money if the conditions on the amount of any benefit received in return are met.
Because sponsorship is a taxable activity, unless your business, as the sponsor, receives nothing more than an acknowledgement, a VAT registered charity must account for standard rate VAT on any sponsorship income received. Your business, as the sponsor of the Charity, can reclaim the VAT if the sponsorship is for business purposes and you make taxable supplies (i.e. standard, reduced or zero rate). If your business makes exempt supplies, it may have to restrict the amount of VAT it recovers in accordance with the normal rules of VAT. If your business is considering this course, you should contact HMRC Charities on (8am to 5pm Monday to Friday) or consult the Charities pages of guidance at www.hmrc.gov.uk (VAT notice 701/41 – Sponsorship) before proceeding.
Your business can claim tax relief on that donation.
It applies to:
If in doubt, HM Revenue & Customs can help you decide whether your gift will qualify for relief. You should contact HMRC Charities on (8am to 5pm Monday to Friday).
You can claim tax relief equal to the market value of the shares on the day you make the gift, together with any associated costs such as brokers' fees. Tax relief can also be claimed on shares that are sold to Charity at less than their market value. In this case, you can claim a deduction for the difference between the full market value and the proceeds you receive from the Charity. In both cases, you should also take off the value of any benefit you receive from the Charity in return for your gift.
If your business gives real property (land or buildings) in the UK to Charity, you are entitled to claim tax relief based on the value of the property. The Charity will give you a Certificate when you make a gift of real property.
How to claim the tax relief
If your business is a company you can claim relief by entering the amount in the ‘Charges Paid' box of your Corporation Tax Self Assessment return for the accounting period in which the gift was made. For partners or the self-employed, details of the gift should be entered on your Income Tax Self-Assessment return for the tax year in which the gift was made. In addition, any gain on a gift of property to a UK Charity is exempt from capital gains tax. Donors are entitled to claim a deduction for the full market value of the property donated less anything received in return.
Although the assets of your business are donated rather than sold, the donation may have to be treated as a ‘sale' for VAT purposes. If your business is considering this course of action, you should consult HMRC Charities before proceeding.
Your business may be able to claim tax relief on that donation. It applies to items that business manufactures or sells (for example, a toothpaste manufacturer donating toothpaste to a homeless Charity), and to plant or machinery that your business uses (for example, an IT company donating a computer to a youth advice Charity), providing these are used in the course of your trade. Your business must be a trading company, a sole trader or a trading partnership.
If you donate goods, manufactured or sold in the course of your trade, then nothing is included as a trading receipt when you calculate the profits of the trade for tax purposes, so you receive relief for the cost of the item against your taxable profits.
Where you donate machinery or plant used in the course of your trade, you can treat it as having been disposed of at nil value when you calculate your capital allowances. Total capital allowances will be equal to the cost of the item.
Because the stock of your business is being donated rather than sold, your business, as the donor, will not be able to recover the VAT incurred on the purchase. Alternatively your donation can be treated as a ‘sale' for VAT purposes and your business, as the donor, will have to account for VAT on the value of the stock. However, if the stock is donated to a Charity for sale, export or letting by the Charity, your business, as the donor, can zero rate the ‘sale' and fully recover the VAT on the purchase of the stock. If your business is considering this course of action, you are advised to consult HMRC Charities before proceeding.
If any of your employees are seconded to a charity or a school, and your business continues to pay their salary, you can deduct the costs associated with employing that person as if they had continued to work for you normally. This applies whether the person is undertaking voluntary work within the Charity or school for a period of weeks or months, an odd day, or just a few hours on a regular basis, or whether they are involved as a volunteer or mentor as part of the activity of the Charity or school. This applies to sole traders, trading partnerships and companies with a trading or investment business.
All you need to do is treat the costs incurred in connection with the secondment (for example, the relevant proportion of the person's salary) as a normal business expense when your business is calculating its profits for tax purposes.
Around 24 per cent of employees work for employers that support schemes for volunteering and mentoring. Two fifths of these employees participated in the scheme in the past 12 months.
Employee volunteering is a great way to get involved in the community, bringing direct benefits to the employees involved, the business as a whole and the community or organisation supported.
If your employees are volunteering in your business' time, then you can continue to claim a business deduction as if the staff were working for normally in that time.
All you need to do is treat the costs incurred to your business as a result of the volunteering (for example, the person's salary) as a business expense when your business is calculating its profits for corporation tax purposes.
Your business can consider setting up and promoting a Payroll Giving scheme. In 2007-2008, 717,000 employees gave approximately £109 million to Charity in this way. Payroll Giving is an excellent way for employees to make regular donations, of any amount, to the Charities they personally support. Tax relief is given directly to donors by deducting the donation from gross pay before tax is calculated, thus reducing the donor's overall tax bill. The amount of relief donors receive will therefore depend upon whether they are higher or standard rate taxpayers. For a higher rate taxpayer, a £10 donation costs just £6 and for a standard rate taxpayer, the same donation costs £8.
The costs to your business of setting up a Payroll Giving scheme are minimal and all businesses can claim tax relief on the costs of setting up and running a scheme. If your business chooses to match your employees' donations, that gift to Charity can be treated as a donation in the normal way and tax relief claimed under Gift Aid. Your business must have a contract with an HMRC approved Payroll Giving Agency before deducting donations from pay. Your employees indicate, on a simple form, which Charities they want to support and how much they want to give. Donations are deducted from their [gross] pay before deducting income tax under PAYE and a Payroll Giving Agency distributes the donation to the Charity chosen by your employee.
There is a lot your own business can do to increase the number of your employees involved in Payroll Giving. Research shows that Payroll Giving can be really successful as part of an effective employee communication programme. Read more about Payroll Giving.
Your business can make a donation, in cash or in kind, to an Urban Regeneration Company (URC). URCs are regeneration bodies, which bring together the public sector, local authorities, and business to champion and stimulate new investment into areas of economic decline and to coordinate plans for regeneration and development.
Most businesses get tax relief for their donations (so long as they do not get a benefit from the donation). If your business wants to donate to a URC, for example by giving money, seconding an employee or providing free accommodation to an URC, all you do is deduct the amount of your donation when your business is calculating its profits for tax purposes.
Your business can lend money to, or invest in the securities or share capital of, accredited Community Development Finance Institutions (CDFIs) and obtain Community Investment Tax Relief (CITR).
CDFIs provide finance to businesses, including social, community and not-for-profit enterprises that have viable business propositions but are unable to access mainstream sources of finance.
CITR is available to an individual or company lending to or investing in an accredited CDFI. The tax relief reduces the investor's income tax or corporation tax liability by 5 per cent of the total amount invested in the year of investment and each of the following four years, giving a total relief of 25 per cent. The tax relief can also be complemented by financial returns offered by CDFIs on top of CITR.
An investor receives a tax relief certificate from the CDFI, which provides the necessary information to claim the relief when making their tax return. There is no limit to the amount of investment that an investor may make and claim relief for, but there are limits to the amount of investment that can be raised by any single CDFI.
After five years, the investment made in the CDFI may be redeemed. Depending upon the terms on which the investment was made and the performance of the CDFI this may be in full, with the benefit of a capital gain or less any capital losses that have been incurred.